An employee views the Port of Shanghai from an office window, January 19, 2011. Chinese President Hu Jintao and President Barack Obama will meet with U.S. and Chinese business leaders at the White House on Wednesday to discuss ways to expand trade and investment opportunities, with the U.S. executives seeking deals to tap into China's economic growth.
REUTERS/Carlos Barria

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By Doug Palmer| WASHINGTON

WASHINGTON In this year's race for the U.S. presidency, Republican challenger Mitt Romney's brash confidence in free markets contrasts with President Barack Obama's more cautious approach.

But in the area of trade policy, the United States appears headed toward more free trade deals and continued confrontation with China, no matter who wins in November.

With the U.S. unemployment rate still stubbornly above 8 percent, Romney is courting blue-collar votes in swing states like Ohio by promising to get tough with China over its currency practices and by highlighting Obama's refusal to formally label Beijing a currency manipulator.

His tough talk, however, is mixed with a plan more appealing to U.S. business groups, who worry a showdown over the value of China's currency could start a trade war with Beijing.

Romney has proposed a "Reagan Economic Zone," a new super-sized free trade agreement without precise geographic boundaries to act as a counterweight to the Asian powerhouse.

The United States already has free-trade deals with 18 countries. The first, with Israel, was crafted when Ronald Reagan was president in the 1980s; the latest - with South Korea and Colombia - were approved by Congress on Obama's watch.

With China an increasing economic challenge, Romney says the United States should now consider forging those pacts together and linking them to possible new deals with the European Union and other trading partners in the Asia-Pacific region.

"The idea of the Reagan Economic Zone, at the conceptual level, bridges the ideas of opening markets and confronting those that don't play by the rules," Oren Cass, domestic policy director for the Romney campaign, said in an interview.

Despite the Republican branding bid, analysts say Obama is already moving toward a similar goal in trade talks in the Asia-Pacific region. His administration is also exploring trade talks with the 27-nation European Union and could make a decision to launch negotiations with Brussels by the end of the year.

"The campaigns will try to paint very, very stark differences in policy and in most areas the policies will be very similar," said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics.

Still, Schott said trade would probably be given higher priority in a Romney administration.

'BLOW THE WHISTLE'

Romney, a former Massachusetts governor and successful businessman, accuses his Democratic opponent of damaging U.S. trade leadership and wasting valuable time by taking three years to win congressional approval for pacts with South Korea, Colombia and Panama concluded by Republican President George W. Bush.

Obama's decision not to ask Congress for "trade promotion authority," legislation long considered essential for negotiation of trade agreements, is another sign of neglect on the trade front to appease union groups, Romney says.

Cass called Obama's trade record "terrible." "He has offered no forward-looking agenda or given any reason to believe things would be different in a second term," he said.

The White House rejects such charges, saying it inherited three agreements that could not be approved without changes and extensive consultations with Congress to build support.

It disputes the notion that U.S. trade negotiators have been hampered by a lack of trade promotion authority, and says it will seek the legislation at the "appropriate time."

The administration also touts its record on enforcement of trade agreements, but Romney argues that the White House has not done enough to make China play by global trade rules, especially on currency.

U.S. manufacturers complain that China deliberately undervalues its currency to give its exporters an unfair price advantage.

Four years ago, the Peterson Institute for International Economics, a Washington think tank, estimated the yuan was undervalued by 31.5 percent against the dollar. Its latest estimate in May was only 7.7 percent, although the yuan has dropped in value since then.

Romney has promised to move both unilaterally and in cooperation with other countries to rein China in, starting with a high-profile pledge to formally label Beijing as a currency manipulator on his first day in office.

"That's not to say on day one, we're going to impose massive tariffs," Cass said. "But let's at least be willing to acknowledge that you do manipulate your currency and let's start a discussion about that."

Obama promised during the 2008 presidential campaign to take China "to the mat" for undervaluing the yuan. But in seven semi-annual Treasury Department reports, he has declined to label China a manipulator, Cass noted.

"It certainly makes it hard to demand that everybody play by the rules when you're not willing to stand up and blow the whistle when they don't," Cass said.

White House officials say Obama has been able to achieve success on the currency front through diplomacy without formally declaring China a manipulator. After holding the yuan steady against the dollar for three years, China resumed a gradual appreciation in June 2010.

"We've never let up pressing them on this issue, from the president, (Treasury) Secretary (Timothy) Geithner, on down. This has been front and center in our conversations with them and I think it produced substantial results," White House international economic affairs adviser Mike Froman said.

"We continue to push them to go further and faster. But I think we've had quite an effective strategy," Froman said.

'OUR RECORD STANDS UP'

Cass said Romney has no intention of starting a trade war, but believes the United States should be prepared to use whatever leverage it has, or what Romney's website describes as a "fresh and fearless approach" to China trade.

One way to pressure China to do more to stop piracy and counterfeiting of foreign goods would be for "the U.S., the EU and Japan to all hold hands together and say to China, 'We're going to block the following technology transfers into your country until you prove a willingness to actually enforce our intellectual property rights'," Cass said.

Since Obama took office, the U.S. trade deficit with China has continued to rise, a trend blamed by union groups for millions of lost jobs. It hit a record $295 billion last year.

Romney has also promised to allow the Commerce Department to slap countervailing duties on Chinese goods if Beijing continues to undervalue its yuan, a move the Obama administration considered and rejected.

But Obama has won World Trade Organization victories against Beijing in areas ranging from intellectual property rights to financial services to raw materials trade, and has launched several other challenges, such as a case against Chinese export restrictions on rare earth materials.

He has also created a new interagency trade enforcement unit to devote more resources to ensuring China and other countries abide by global trade rules.

"I think our record stands up well compared to any other administration," Froman said.

'NOT VERY VULNERABLE'

To a large extent, Romney's and Obama's views reflect long-standing party positions, with Republicans traditionally more supportive of free trade and Democrats more skeptical.

But even though Obama was slow to take up the trade mantle, he "will not be very vulnerable, or vulnerable at all, to the charge that he ran an isolationist or a protectionist administration," said Claude Barfield, a trade scholar at the American Enterprise Institute, a conservative think tank.

Not only did Obama eventually win approval of the South Korea, Colombia and Panama deals, but he has also embraced and expanded U.S. free trade talks in the Asia-Pacific.

Obama has brought in three more countries - Mexico, Canada and Malaysia - into Trans-Pacific Partnership talks with United States, Brunei, Chile, Singapore, New Zealand, Australia, Peru and Vietnam.

The TPP scheme is similar to Romney's Reagan Economic Zone as it would link together existing U.S. free trade pacts with Mexico, Canada, Australia, Singapore and Peru into a larger agreement with the other countries, Schott said.

Also, like the Reagan Economic Zone, it's billed as a cutting-edge agreement that would go beyond what countries have done in previous deals to tear down trade barriers and to protect intellectual property rights of U.S. firms.

Japan has also expressed interest in joining the TPP, although there is no timetable for a decision on that.

(Reporting by Doug Palmer; Editing by Timothy Ahman, David Lindsey and David Brunnstrom)

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